US and China buck up markets, Bank of England disagrees

8 lis 2019

Thursday was not full in events however we could observe some movements that were mainly focused on safe-haven assets, in which a mass exodus of traders was observed.

You do not have to guess what is markets concern about, just look throughout the dynamics of gold or the Japanese yen, you can see is there any progress or not in negotiation between the USA and Sino.

Since gold, like the Japanese yen, was sold yesterday, it is clear that something positive happened between the United States and China. Indeed, China and the United States have agreed to tariffs phase-out before the deal to be made.

This is a very strong confirmation signal for markets that were expecting the successful completion of the first phase of negotiations by the end of the month. Accordingly, investors relaxed and began to leave the safe-haven assets, which provoked sales in government bond markets and safe-haven assets.

In connection with such news, we will wait a while with the purchase of safe-haven assets, since in the short term it is difficult to say how long it will take to work out this fundamental factor. Although in the medium term we remain bulls (gold), and we consider the current decline as an opportunity for cheaper purchases.

Progress in trade negotiations contributed to the oil prices growth so that diversification once again proved to be the best ( losses in gold were offset by oil earnings). Well, our recommendation to buy oil continues to be relevant.

The Bank of England decided to keep the base rate at the same level. However, the voting results surprised: 7 members of the Monetary Policy Committee spoke in favour of the invariance of the rate, but two of them voted in favour of a cut. Which, of course, was a negative signal for the pound. However, support for 1.2810 has survived. Accordingly, our recommendation to buy GBPUSD on intraday day basis remains valid. But do not forget about the stops, and it does not make any sense to put them largely- the bears may well seize the initiative and take the pair to the bottom 1.27.

The euro was not lucky yesterday, industrial production in Germany fell by 0.6% (a 0.4% decline was expected). Given the rather strong downward pressure today, we are more likely to sell the euro than to buy it. But today, instead of pairs with the euro, we will work in pairs with the Canadian dollar. Labour market statistics are likely to lead to a volatility jump. Well, recall that for commodity currencies (which include the Canadian dollar is included), progress in trade negotiations is a positive signal. Yesterday it was ignored by the markets, but it is likely to be worked out today.